MUMBAI - Indian companies struck 550
merger and acquisition deals worth US$55 billion
in the first six months of 2007 - already more
than the size of M&A deals in all last year -
leaving a new Asian imprint whose implications on
the global economy raise more interesting
questions than clear answers.
Consulting
firm PricewaterhouseCoopers, tracking the deals,
listed the bigger Indian conquests in North
America and Europe, such as Tata Steel gobbling
Corus Group for a record $12 billion; Hindalco,
flagship company of the Aditya Birla Group, buying out
European giant Novelis, a
world leader in aluminum rolling and recycling,
for $6 billion; alternative-energy newcomer Suzlon
pocketing Germany's REPower for $1.6 billion by
outbidding French rival Areva, and Essar Steel
winning American Minnesota Steel for $1.65 billion
and Canadian Algoma for $1.5 billion.
"Before, it was hard to raise the foreign
exchange we needed for our plans," R
Gopalakrishnan, head of Tata's international
business, told foreign media. In happy contrast
now, India's foreign-exchange reserves are worth
$229 billion. and the country's money regulators
are pushing Indians to invest abroad.
Asia
also figured prominently in the India Inc shopping
list, with $4.2 billion being invested in the
first quarter of the current fiscal for M&As
of Asian companies.
The M&A growth is
impressive, with India's deals abroad worth $3.68
billion in the first half of 2004, $25 billion in
2005, and aiming to cross $100 billion by end of
2007.
"The Indian merger-and-acquisition
scene has exploded," remarked Frank Hancock,
managing director of ABN Amro Asia Corporate
Finance, advisers to Tata in the Corus deal, in an
interview to India's Business Standard.
Industry observers also say Indian
companies score over Chinese M&A hunters
because of more Chinese companies being partly or
fully government-owned.
The traditional
typecasting of the Indian mindset as being timid,
insular (in earlier orthodox Hindu belief, going
overseas was considered "unclean") and lacking in
self-confidence has been thrown aside, with Indian
corporate raiders eating up foreign companies much
larger in size.
Tata Coffee bought out
Eight O'Clock, the third-largest coffee chain in
the US, for $220 million, similar to how Tata Tea
took over Tetley Tea in Britain in 2000. "The
Tetley guys just didn't know how to say no to a
bunch of furiously determined Indians," remembered
one of Tata top executives involved in the deal.
Analysts are attributing the voracious new
Indian appetite for M&As to reasons ranging
from India Inc being confident of managing global
enterprises, a realization that growth has to
transcontinental, and friendlier regulatory
policies to the huge armory of investment funds.
The herd mentality can also be duly credited. If
one Indian corporate major flaunts an overseas
trophy, rest assured local competition won't rest
until its ego is appeased with a similar
acquisition.
The confident new
aggressiveness from India Inc is in staggering
contrast to the early 1980s, when industry
patriarchs closed ranks and howled to the
government to thwart India-born British corporate
raider and philanthropist Lord Swaraj Paul's
efforts to take over Indian company DCM Escorts.
Interestingly, Paul said in an interview
in 1999 that it was the Reserve Bank of India and
its then governor Manmohan Singh, the current
Indian prime minister, that reversed policies in
1983-84 and dashed hopes of his UK-based Caparo
Group taking over the Indian company.
The
US ranks as top hunting ground for Indian Inc,
with apex industry body the Federation of Indian
Chambers of Commerce and Industry reporting that
M&A deals with US-based companies cost $5.1
billion in the April-July period. The FICCI report
"Study on Mergers and Acquisitions During
April-July 2007-08" listed Tata, Infosys, Essar
and Reliance among the busiest acquirers in the
United States.
India's respected
industrial group Tata led the conquests, investing
$2.13 billion to acquire companies in steel,
automobiles and the hospitality industry
worldwide. In Asia, Tata helped itself to a 65%
stake in Vietnam Steel. Singapore too prominently
appeared in Indian radars. In Indonesia, Tata
Power Co bought a 30% stake in PT Kaltim Prima
Coal and PT Arutim Indonesia for $1.1 billion.
In Europe, India Inc favored companies in
Germany ($1.52 billion worth of takeover or merger
deals), the United Kingdom ($1.2 billion), Italy
($97 million) and Spain ($19 million). South
America and Africa entered the Indian M&A
shopping list with about $6 million worth of deals
this quarter.
In another India M&A
report released on August 12, the Associated
Chambers of Commerce and Industry (Assocham), in
its first Eco Pulse Study, said Indian companies
spent $15.3 billion in the first quarter of this
financial year, compared with $2.06 billion that
foreign firms spent to rake in Indian firms.
"The equation of business relations with
the Western countries is undergoing a significant
change," observed Assocham president and leading
industrialist Venugopal N Dhoot. "Indian business
leaders are aiming inorganic expansion through the
most industrialized countries of the world."
The impact is mutual, for instance in the
evolution of purchase price allocation (PPA), the
financial statements and accounting needed to
evaluate a targeted company. Consultants with
Ernst & Young believe that present Indian
accounting systems for acquisitions will have to
change to current global PPA standards to keep
pace with India's M&A drive.
The
M&A appetite also means Indian companies will
need 5,000 more vice presidents in the next two
years, according to an estimate in Forbes, with
India having to import foreign managers as well as
export Indian managers to harmonize global
operations.
Immediate dampeners could be
the increasing loan-money squeeze in the US, which
means fewer funds and higher interest will put a
brake on cross-border M&As. But the more
optimistic economists view the current situation
as "dynamic" and say it should not deter the
determined raider.
The American Chronicle
quoted a Boston Consulting Group study declaring
that the next wave of global corporate successes
will come from Indian companies "with their
low-cost, high-quality products and services".
The bigger challenge is for India to
translate these corporate triumphs to wider
prosperity, a problem tragically emphasized in
Maharashtra, one of India's most economically
advanced states, where its debt-ridden farmers are
still committing suicide, even after 100,000 of
them have killed themselves in the past decade in
the state's Vidharbha region alone.
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